These indices play a role in the direction of mortgage rates. Here’s how;
Stocks and bonds compete for the same investment dollar. Learn more about the free online slots quick hits to improve your skills. In other words, an investor has to make a decision to invest their money in either the stock market or in the bond market (there are other investment options but these two classes are the primary vehicles for investment money).
In general, when the stock market goes down it is a sign that investors are selling stocks and shifting their capital into bonds. This boosts bond prices and drives mortgage rates down. Conversely, when the stock market rallies it is a sign that investors are selling bond positions in order to shift money into the stock market. The greater supply of bonds on the market drives prices lower and pushes mortgage rates higher.
The main factor driving these decisions is the investor’s view of the overall health of the economy. Generally, when economic health is perceived as strong, investors will put their money in riskier assets (like stocks). When the economic health is perceived as weak investors will put their money in safer assets (like bonds, commodities, or Mortgage Backed Securities).
